World Bank focuses on securitisation to scale climate finance

The World Bank is working with a club of 15 finance bosses to lower the risk of investing in climate projects in emerging economies and attract private capital for cutting emissions.

Ajay Banga, the World Bank’s president, said the Private Sector Investment Lab is focused on “figuring out a model of originate-to-distribute” that would allow for deep-pocketed investors to put up large sums for climate deals.

The creation of a “securitisable asset class in these kinds of investments, where large pension funds, large players like BlackRock will find a very attractive place to put billions to work,” is a key target, he said at the Bloomberg Business Forum at COP28.

PSIL, which launched in June under the auspices of the World Bank, also includes BlackRock’s chief Larry Fink, AXA SA Chief Executive Officer Thomas Buberl and Noel Quinn, head of HSBC.

The group is focused on specific approaches that the World Bank can implement after years of struggling to mobilise the vast sums of money needed to help developing countries adapt to climate change and transition to clean energy. The World Bank has also stepped up action on other fronts, including allowing some vulnerable countries to potentially pause debt repayments and hosting a fund for climate damages.

Shriti Vadera, who co-chairs PSIL, said the group is working on financial guarantees because these are “the most efficient and most well-known and used form of credit support.” The PSIL has looked at first-loss and whole-portfolio guarantees, said Vadera, who is chair of Prudential.

The goal is for the World Bank to “create a much more simplified set of guarantee products that can be used across different markets,” she said.

Mark Carney, United Nations Special Envoy for Climate Action and Finance and the other PSIL co-chair, pointed to the constraints banks face under rules introduced after the 2008 financial crisis. They can be a hurdle to scaling climate finance in some of the riskier parts of the world. That’s why PSIL is also looking at the capital treatment of guarantees by regulators and supervisors, he said.

Carney, who is also the chair of Bloomberg, said success will be judged by how much extra private finance can be mobilized. “We need to create as much financial firepower as possible,” he said.

Banga said developing efficient ways for public and private players to work together to scale financing is needed because “the reality is multilateral development banks around the world put together don’t have that type of money,” and neither do governments or philanthropies.

Still, for investors and financiers, returns remain the key consideration.

“The trillions won’t come unless there’s a decent return for the risk because it’s ultimately money that has fiduciary duties to the investors whose money they invest,” said Shemara Wikramanayake, chief executive of Macquarie, said on a separate panel at the Bloomberg Business Forum.

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